Editorial: Unions put Air France on a path to smallness

Air France-KLM CEO Jean-Marc Janaillac put his neck on the line when he attempted to stand up to the potentially ruinous holdouts of its unions, whose strike actions have so far cost the company some $350 million.

By inviting all employees—unionized or not—to participate in a vote on the company’s multi-year pay offer, Janaillac hoped the outcome would have been a show of support; that the majority of staff believed the offer was fair. But that was not the case; 55% of the 80% who voted said “non.” And the CEO followed through on his pledge to step down).

The consequences of this crisis—the one-day strikes continue—for Air France and its group partner KLM are dire. The company’s Franco-Dutch board has made clear it is in no mood to cave in to union demands that it fears will jeopardize the group’s growth strategy.

Those fears are well based. Europe’s airline industry is now centered around three major legacy groups—British Airways parent International Airlines Group (IAG), Lufthansa Group, and Air France-KLM—and the LCC giants easyJet and Ryanair. Most are in growth mode; having either started with blank sheets and low-cost structures or, in the case of IAG and Lufthansa, having negotiated the labor deals and accomplished the reconstructuring necessary to give them a cost base that keeps them competitive against the LCCs. KLM employees themselves have made pay concessions.

The exception is Air France, which now faces the double peril of rising labor and fuel costs and whose 2018 earnings are already severely impacted by the strikes.

While Air France unions may be correct that the company can go higher than the pay offer made and survive, they are wrong to believe that such a path would maintain Air France-KLM’s position as one of the “big three” European legacy groups.

As Janaillac clearly understood, agreeing to cost deals the company cannot afford would mean sacrifices elsewhere: a retreat rather than growth; survival rather than investment in the future. Ultimately, it would leave Air France-KLM in a far weaker competitive position against IAG and Lufthansa. The LCCs, meanwhile, continue to grow their market share in Paris and other French cities.

How Air France and the unions get out of this bleak cul-de-sac is far from clear. Janaillac was regarded as an expert in labor negotiations, but he was no more able to reshape union thinking than his predecessor, Alexandre de Juniac, whose restructuring the unions strongly, and sometimes violently, opposed.

That restructuring was a vital opportunity to do what the IAG, Lufhansa Group and KLM employees have achieved; secure their futures through growth.

The unions may believe the staff vote strengthened their hand. In reality, their intractability will lead to a smaller company and fewer jobs.

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